Speculative selling in gold accelerated in late October, pushing prices lower even as US real yields fell. Non-traditional investors drove the outflows, and options data now point to active downside hedging.
Non-traditional investors offloaded $8 billion in gold positions between Oct. 20 and Oct. 27, according to CFTC Commitment of Traders data. The group covers Managed Money, "Other," and Non-Reportable traders.
The move was the fifth consecutive week of bearish flows, lifting cumulative speculative outflows to $19.5 billion since Sept. 22. Long liquidations of $5.2 billion and $2.8 billion in newly established short positions drove the weekly outflow.
Other and Non-Reportable traders lead the exit
"Other" and Non-Reportable traders accounted for approximately 95% of the total outflows. Gross long selling by the "Other" category alone totaled $4 billion.
Gold slipped 1.6% during the period, despite an 11-basis-point drop in US 10-year real yields. A fall in real yields typically helps non-yielding bullion.
Gold faces dollar and Brent headwinds as yields fall
Gold instead faced a 0.6% strengthening in the US dollar and a 4.1% rally in Brent crude oil. Analysts noted that fears over sovereign liquidity management and the resilience of the greenback likely sparked the unwinding of "Other" positions.
The setup remains challenging for bulls. "Other" gross long positions on Oct. 27 stayed above their two-year median in notional terms and as a percentage of open interest, which leaves the door open for further long liquidations.
Options market signals downside hedging
Gold then shed an additional 4.3% between Oct. 27 and Oct. 30, while Brent crude rose another 3.7%. The Brent surge appeared to overshadow slight retracements in the dollar and real yields.
In derivatives, the options surface indicated active downside hedging and outright bearish bets. Gold's three-month implied volatility richened, and the normalized 25-delta put-call skew spiked to the 85th percentile of its one-year range.
Source: Investing.com
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